Homeowners who have missed many mortgage payments and want to apply for a loan modification need to be prepared to make an initial payment to their lender. In some instances, when you apply for a mortgage loan modification, your lender may ask for a good faith deposit. You need to know about this possibility, because if you are not able to provide what your bank asks for, your loan modification application could be denied. What is this and why might your bank want it?
A mortgage loan modification good faith deposit is often requested by lenders when a borrower has not made any home loan payments for many months. A good faith deposit could be equal to a portion of the past due payments and the bank will ask for that amount as a condition to complete the loan modification. When and why will the lender ask for this?
Let’s say that you fall behind on your payments and do not pay anything for many months. You apply for a mortgage loan modification and prepare your financial statements detailing your income and expenses. These forms show your lender that you while you can’t afford the current high mortgage payment, you do have enough income coming in to pay your bills and can afford a new, lower modified mortgage payment. This is how you convince the bank that you are a good candidate for a loan workout. So if you haven’t made any payments at all for a few months, you should still have some reserves left over, right?
The HAMP guidelines require that all loan modification terms include an escrow or impound account for the property taxes and homeowners insurance. This means that each month you pay 1/2th of your annual tax bill and insurance bill to your lender. The bank then holds this amount in reserve, until it is time to pay the bill and they they pay it for you. This is to avoid default on your taxes and to make certain that their collateral is always insured.
If your taxes are due soon, and there is not enough money in your current impound account, or if you did not have one previously, you may be required to deposit a sum in order to start up the impound account. This is another reason why you may need to have some money set aside to finalize your mortgage loan modification. While back taxes can be paid for you and then that amount added to your loan balance, an impound account may require some upfront funds from you. Don’t let this be a reason to not be able to modify your loan!
Unfortunately, many homeowners spend the money that they would normally put towards their mortgage payment. Sometimes, that money that would have gone towards the house payment is used for other debts. But your bank wants to know that your home loan is your priority-that is why it is so important to hold onto some of the money that would have gone towards a mortgage payment. Being able to pay a good faith deposit to get your mortgage loan modification started could be the difference between help and losing your home. If your lender asks for a good faith deposit you need to be able to pay it, or you must have a very good reason for not having any money available and be able to document it. Try to put aside some money so that you will be able to pay a good faith deposit if your bank asks for it.
The federal program, HAMP, does not usually require a large upfront payment. Any missed payments can be added into the loan balance and included in the new modified payments. The Obama plan offers a very low affordable payment which is targeted to equal 31% of your gross monthly income. THis is a very good plan to apply for, and since it features standard approval guidelines it is recommended to prepare your application correctly to meet those guidelines.
There is actually a 4 step formula that the banks use to determine if a homeowner qualifies for the HAMP plan. You can take the frustration and confusion out of preparing your own application by using the Loan Mod Quick App software program-it actually does all of the calculations for you so you can be confident with your application. Whether you apply for HAMP or some other loan workout program with your lender, be sure you take a few hours to prepare your paperwork correctly for the best chance of approval.